Important changes to consumer law

April 2015...From 17 March 2015, the final stage of an overhaul of consumer laws will come into effect, which will have importance for both consumers and businesses.

This is an opportune time for businesses to consider reviewing their contracts to ensure compliance with the new laws.

Unfair terms in standard form contracts

Changes to the Fair Trading Act 1986 mean that businesses will not be able to rely on “unfair terms” in standard form consumer contracts entered into after 17 March, or in existing standard form contracts varied or renewed after that date (excluding insurance contracts).

Generally, a contract is considered “standard form” if it is pre-written and offered to the consumer on a “take it or leave it” basis, such as contracts used by internet and phone companies, home construction companies, gyms, or retirement villages. “Consumer” contracts relate to the supply of goods or services of a household, domestic or personal nature.

A term may be “unfair” if it:

significantly favours the business rather than the consumer;

is not reasonably necessary to protect the business’ legitimate interests; and

would cause detriment to the consumer if enforced.

Examples of a "unfair terms" include the unilateral right of a business to:

vary the price;

end the contract or;

impose unreasonable penalties on a consumer ending the contract.

Certain key terms are exempt from being unfair, such as the price or main subject matter of the contract.

Consumers who consider a term “unfair” may complain at no cost to the Commerce Commission, who will consider the merits of the claim and, if they agree with the consumer, may seek a declaration from the Courts that the term is unfair. The business will then be unable to enforce or rely on the unfair term, and may be liable for a fine of up to $200,000 for individuals or $600,000 for a company.

Although only standard form consumer contracts are affected by the new laws, business to business contracts are also caught under the rules if the contract is for consumer goods or services that a business is not intending to use in production or for resupply in trade, for example, providing tea and biscuits for staff in a staffroom.

Contracting out of consumer laws:

Other changes to consumer law, rolled out from mid-2014, enable businesses to contract out of both the Consumer Guarantees Act 1993 (CGA) and certain provisions of the Fair Trading Act, where:

the business is a business in trade supplying goods and/or services to another business;

it is “fair and reasonable” to contract out; and

the parties have agreed to do so in writing.

In terms of the Fair Trading Act, parties may now contract out of the provisions relating to:

misleading and deceptive conduct;

unsubstantiated representations;

false or misleading representations; and

false representations or other misleading conduct in relation to land (for example, if a real estate agent falsely represents that a section for sale as part of a property development has its own title)

Other changes

As part of the recent overhaul of consumer law, other rights and obligations have been affected, such as:

Buying and selling online – online traders must make it clear they are in trade, meaning purchasers will have rights under the CGA).

Extended warranties – traders must let consumers know their rights under the CGA, and disclose the differences between those rights and the benefits of any extended warranty being offered.

Unsolicited goods and services – businesses may not demand payment for unsolicited goods or services.

Substantiation – traders commit an offence if they are unable to substantiate a claim about goods or services they sell.

Auctions – certain types of auctions (excluding online auctions such as TradeMe) are now subject to new rules.

Door-to-door and telemarketing sales – consumers have extra protection from those who engage in door-to-door or telemarketing sales.

To seek further advice, please contact David Robinson, Kate Logan, or Isabella Broadbent, or contact Rosie Clark if you wish to draft new clauses for your contracts